Note: this entry has moved.
There is already a web technology that would readily support building next-generation websites: Flash. It's deployed on **98%** of internet-connected PCs. That's WAY more than any single browser, and most probably more than all XMLHTTPRequest/AJAX-capable browsers together!
And Microsoft is down right with their approach to take over the web: XAML, fully powered by vector graphics that will make those 3D worlds possible. But they made what I think was a terrible mistake: rewrite Flash by themselves. You see, when Vista finally hits the streets, Flash will still be the most mature vector-graphics platform out there, with XAML almost certainly full of bugs and missing lots of features (it's going to be a v1 after all), lack of support and adoption for years, etc. Had Microsoft bought Macromedia/Flash, Vista could have been released at least a year ahead of time, its new UI powered by Flash, and seamlessly integrated with the web.
Now, if somebody is going to do anything to fight MS in this new wave, it'd better start by buying Flash (now owned by Adobe). And there's no-one in a better possition to compete than Google. I just hope Google doesn't waste too much time and money in a decadent platform, and realizes soon enough to survive MS' next attack.
And if I were Microsoft, I'd leave IE as-is, full of bugs, with a leaky script engine, and maybe make scripts slower in future releases. In the end, improving the browser in a world where they would like everyone to switch to XAML will only benefit Google, who seems to base its strategy in AJAX applications.